Competition Tribunal puts credit card fees in Ottawa’s court

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Canada's Competition Tribunal has tossed out a case over billions of dollars in credit card transaction fees and punted it to the federal government.

Launched by the Commissioner of Competition in 2010, the case argued that retailers should have more freedom to determine who absorbs the fees that Visa Inc. and Mastercard Inc. impose on purchases. The tribunal suggested that the government deal with the matter through regulation.

The case was fought by the Competition Bureau on behalf of retail merchants who want the right to put surcharges on credit card transactions to offset fees collected on each sale. These fees, which are split between the credit card companies and the financial institutions issuing the cards, amount to roughly $5-billion a year, according to the competition watchdog. Retailers also want the freedom to refuse transactions on "premium" cards, which take larger cuts of each sale.

Merchants' contracts with the credit card companies prohibit either measure, leaving governance over how credit card fees are allocated to Visa and Mastercard, which process more than 90 per cent of all credit card transactions in Canada.

When the tribunal ruled that the bureau's case doesn't have merit under the Competition Act, it distanced itself further by saying that the body wouldn't rule, even if merit existed, because experience has shown that the matter doesn't get settled without government regulation.

Looking to countries such as Australia and the United States, the tribunal determined "that concerns would be raised by consumers regarding surcharging and that rather sooner than later, intervention would have to take place by way of regulation."

Shortly after the tribunal issued its ruling, Mr. Flaherty urged further dialogue between the opposing parties. The Finance Minister said he is "carefully reviewing" and "monitoring any potential appeal," and added that he asked the government's FinPay Committee that discusses payment issues to come together "to discuss this matter and next steps."

Cooperation may not pan out, though. In an interview Tuesday, MasterCard Canada president Betty DeVita said, "We don't support regulation" and added that merchants and consumers already have "extraordinary choices" because they have the ability to pay with cash or using the Interac debit system.

Whenever a customer buys something using a credit card, the merchant must pay a transaction fee, typically a $1.50 to $3 cut of every $100. The current restraints on passing these costs on to consumers on a per-transaction basis prompts many merchants to raise product prices across the board.

The Competition Bureau says this response penalizes consumers who pay with cash. The body also notes the discrepancy between fees associated with basic cards and premium cards, which give users travel points and other perks.

Following the ruling, Alison Tait, the deputy commissioner of competition, expressed frustration. "Without changes to Visa and MasterCard's rules, merchants will continue to pay excessively high card acceptance fees, and these fees will continue to be passed along to consumers in the form of higher prices for goods and services," she said.

After waiting nearly three years for a decision, Dan Kelly, president of the Canadian Federation of Independent Business, said the tribunal's ruling "turned out not to be Christmas morning but sort of like a bad hangover."

But he is optimistic because the federal government may take up the case – and that could have an even better outcome for merchants.

"I kind of feel that Visa and MasterCard may have won the battle but could potentially lose the war here, in that the tribunal actually suggests the government regulate," he said.

To render a final decision, six months of public hearings were held in 2012, and case studies from other countries were analyzed, including the U.S., Australia and New Zealand.

Editor's note: An earlier version of this story gave an incorrect first name for Betty DeVita. This version has been corrected.